Data Sampling

The data for natural gas and coal were taken from U.S. Energy Information Administration (EIA), while the average U.S. temperatures were taken from National Oceanic and Atmospheric Administration (NOAA). The data for coal are presented in thousand short tons which is equal to 2'000 pounds or 907.18474 kilograms, while the data for Natural Gas is presented in million cubic feet which is equal to 28.3168466 million liters. Lastly, the temperatures are presented in fahrenheit.

The data for natural gas is divided into the following categories and series, where the series in bold is used in this analysis.

Data Structuring

Trend Analysis

Natural Gas

Looking first at the withdrawals and production numbers, we can clearly see a steady increase since 2006. As we will see later, this is only 1-2 years before the decline in coal production and consumption began in the U.S..

We can also see an unprecedented drop for the same series in February 2021, where the monthly and yearly change were -16.85% and -13.34%, respectively. The drop was primarily caused by a drop in temperature during, where the average temperature had it lowest recording in February since 1989. https://www.eia.gov/todayinenergy/detail.php?id=47896

We can also see that the imports started to decrease and exported started to increase as the production numbers started to grow. Until 2016, the export was primarily made through pipelines, but the shipping of liquid natural gas has seen a sharp increase since then.

Forecasts

Temperature Forecast

As we mentioned earlier, the decrease in production and consumption of natural gas in february 2021 was mainly driven by extreme weather. This means that the temperature most likely are an important factor when estimating the consumption of natural gas and coal. In order for us to use the temperature as a covariate when making predictions into the future, we also need to have future values for the temperature as well

Natural Gas Forecasts

Natural Gas Production

Natural Gas Import and Export Growth Forecast

Natural Gas Electric Power Consumption

Our final goal is to estimate the effect that higher prices of natural gas has on the consumption of coal. In order to estimate this, we first need to estimate the effect change in price has on the consumption of natural gas.

Coal Consumption

The model clearly cannot handle the extreme drop in temperature during february 2021, but apart from this does a good job in estimating the consumption for 2021.

In order for the coal consumption to have a positve year on growth for 2022, the price of natural gas, for the electric power sector, would need to increase by around 30 to 40 percent from the levels estimated by IEA. Furthermore, the increase would need to be well above 90 percent for the growth to be positive from 2021 to 2023.